Block, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Block operates Square and Cash App; its BNPL business was allocated equally to both segments during the period. In Q4 2023, management moved BNPL fully into Cash App and plans to recast applicable historical segment results in future filings.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $5.62B | $4.52B | $16.14B | $12.88B |
| Gross profit | $1.90B | $1.57B | $5.48B | $4.33B |
| Gross margin, approximate | 33.8% | 34.7% | 33.9% | 33.6% |
| Operating loss | $(9.9)M | $(48.8)M | $(148.2)M | $(489.4)M |
| Net loss | $(33.8)M | $(18.7)M | $(178.9)M | $(435.4)M |
| Net loss attributable to common stockholders / diluted EPS | $(29.0)M / $(0.05) | $(14.7)M / $(0.02) | $(168.3)M / $(0.28) | $(426.9)M / $(0.75) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $898.9M | $130.5M |
Q3 revenue grew 24% year over year; excluding bitcoin revenue, it grew 16%. Bitcoin represented 43% of revenue but only 2% of gross profit in the quarter. GPV was $60.1B, up 10%. Q3 adjusted operating income, adjusted EBITDA, and adjusted diluted EPS were $89.7M, $477.5M, and $0.55, respectively; these are non-GAAP measures.
Cash App gross profit rose 27% to $983.9M; Square gross profit rose 15% to $899.0M. Q3 operating expenses increased 18% year over year, including product development up 30%, transaction/loan/consumer receivable losses up 20%, and general and administrative up 22%.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $5.11B; short- and long-term marketable debt securities totaled $1.59B. Cash, restricted cash, customer funds, and marketable debt securities totaled $10.26B, but customer funds are not available for corporate purposes.
- Management reported $7.3B of liquidity excluding customer funds and undrawn credit, plus $775M available under the revolving credit facility; it described total available liquidity including that facility as approximately $8.1B.
- Notes had a $4.12B carrying value. Warehouse facilities had $910M drawn against $1.7B of committed and uncommitted capacity, with approximately $800M available. Warehouse borrowings are secured by consumer receivables.
- Nine-month financing cash outflow was $1.04B, including $461.8M to settle 2023 convertible notes and net warehouse-facility repayments. The company said it complied with applicable covenants.
Changes, outlook, and notable items
- Operating cash flow improved to $898.9M for the first nine months, while net loss narrowed from the prior-year period. Investing cash flow was $405.0M and financing cash flow was $(1.04)B.
- Management cited growth in Cash App transacting actives and financial services adoption, and Square’s progress with larger sellers and go-to-market optimization. It plans tighter expense discipline, including an employee cap, workforce reductions, and reassessment of vendor arrangements; near-term restructuring costs may occur.
- No specific financial guidance is provided in the supplied filing text. Management said available funds should meet liquidity needs for the foreseeable future and working capital and planned capital expenditure needs for at least 12 months.
- On October 26, 2023, the board authorized up to $1B of Class A share repurchases, primarily to offset stock-based compensation dilution. The program is discretionary and does not require purchases.
- Cash App complaint-handling investigations include CFPB and multiple state Attorneys General inquiries; Block accrued a nonmaterial amount and cannot reliably estimate potential exposure above that accrual. SEC and DOJ inquiries following a March 2023 short-seller report also remain; exposure is not estimable from the filing.
- Credit losses, consumer and merchant defaults, bitcoin price and demand volatility, payment-processing and banking-partner concentration, cybersecurity and service interruptions, and evolving financial-services regulation are material stated risks. Three processors represented approximately 47%, 31%, and 9% of settlements receivable at quarter-end.
Investor verification points
- Track gross-profit growth and margins separately from headline revenue, given bitcoin’s large revenue contribution and comparatively small gross-profit contribution.
- Assess whether the higher transaction, loan, and consumer-receivable losses and consumer delinquency trends remain manageable.
- Reconcile corporate liquidity with customer funds, restricted cash, warehouse capacity, debt maturities, and the proposed repurchases.
- Monitor expense discipline, workforce actions, recurring share-based compensation, and progress toward sustained GAAP profitability.
- Follow the CFPB/state inquiries and SEC/DOJ matters for developments, potential financial exposure, or operating restrictions.